As a telecoms company, we get asked “how does VoIP work?” a lot. VoIP is fast becoming the most popular form of telecommunication on the planet, and while you may know a little about it – or even none at all – understanding how VoIP works and what it means for your business is something you can no longer avoid.

VoIP, or Voice over Internet Protocol, is a method used to turn our analogue voice signals into digital data, so we can make phone and video calls, among other things, using our internet connections. In doing this, we’re able to take advantage of much lower priced (and sometimes free) phone rates and line rental.

Simpsons gid with Marge asking How Does VoIP work?

The most important reason to get your head around VoIP, though is the fact that the NBN rollout is going to mean your business will be looking for a new way to run and manage your phone system.

What is VoIP?

VoIP Definition

‘Voice over Internet Protocol’ is also known as Voice over IP, VoIP and IP telephony. It is a methodology that includes a group of similar technologies – all used to deliver voice and media – such as fax, SMS, and voice and video calls, over Internet Protocol (IP) networks.

Where these communications have traditionally taken place using the public switched telephone network (PSTN), VoIP specifically refers to communications services that take place over the public Internet.

How does VoIP Work?

VoIP: Codecs

When you use VoIP to make phone calls over the internet, your voice has to be encoded into digital data, and that digital data has to be re-coded into voice signals at the other end of the call. This process of encoding-decoding is achieved by codecs, which is short for – you guessed it – encoder-decoder. Codecs ensure that the data is compressed, which means that it’s transmitted faster and, as a result,  the quality of the call is better.

Codecs are required because, unlike traditional PSTN phone conversations that use analogue data, VoIP uses digital signals. Codecs are used to encode the analogue voice data into digital signals that can traverse the internet. When the digital signal reaches the destination, it will be decoded back to its analogue form, so the person on the line can hear and understand it.

While the idea of digital voice data and codecs may seem complicated, just think of the process as you would an email. Like an email, the data (your voice) has a destination (the number you dial). Your voice is turned into a code (encoded)so that it can move through the internet. At the other end, the code is converted back into the sound of your voice (decoded), so the person you are calling can understand what you said.

If both you and the person you called are using VoIP, then the entire journey of your phone call will take place over the internet. If they’re using the traditional network, the call travels as far as it can using VoIP, and then switches to the public phone network to get to its destination. The same happens if you have a traditional phone, and someone using a VoIP service calls you, only the journey is reversed.

VoIP Algorithms

How are VoIP calls are made?

Unlike traditional phone services, there is not only one way to make a phone call using VoIP. Where you used to connect your phone to a wall outlet, the three most common ways to connect using a VoIP service are:

An Analogue Telephone Device (ATA)

An ATA is an adapter that allows you to use your analogue telephone with a VoIP service. It connects between your phone and your internet service, and will encode the outgoing analogue data from your phone into digital data that can journey across the internet. Likewise, it will take incoming digital data and decode it into an analogue sound that you can hear and understand.

When it comes to switching from traditional services to VoIP, the ATA is a little lifesaver, and can potentially save your business thousands of dollars in new hardware. You can learn more about ATA’s in our Small Business Guide To The NBN.

IP Phones

IP (Internet Protocol) phones look just like a normal phone, however, they are built especially for VoIP. Instead of connecting to your wall socket using an RJ-11 phone cable,

RJ11 Plug & Cable used in VoIP

IP Phones will connect to your router using an RJ-45 ethernet connector.

RJ45 Plug & Cable Using in VoIP

You don’t need an ATA is you have IP handsets, because digital is their native language.

A great entry level IP-enabled handset is the Avaya 1408 Phone Handset, in fact, “For 90% of customers they would be hard pressed to require anything more.”

image of Avaya 1408 Phone Handset

Avaya 1408 Phone Handset

And for business looking for a more advanced IP Phone setup the Avaya 9670G Phone Handset is part of Avaya’s flagship range.

Image of avaya 9670


A softphone is software that loads a VoIP service onto your computer, often with an interface that looks just like a traditional phone. An example of a consumer softphone is Skype,

While business grade softphone services are not always free, the software is often very low cost, and you do make a lot of savings on your calls. You’ll need the VoIP software, a microphone and speakers (or a UC headset), a sound card, and a good internet connection (like any form of VoIP).

How VoIP Works for Your Business

In Australia, the public switch telephone network (old copper wiring)  is being phased out and replaced by the NBN – which means VoIP is soon going to be the main telecommunications protocol nation-wide.

While it is an excellent reason to switch your services to VoIP, more and more Australian businesses are doing so because of the low price and greater flexibility it offers.

Advantages of VoIP

Now that you’ve got an understanding of what VoIP is, let’s take a look at the five biggest reasons Australian businesses are turning to VoIP services to replace their old services:

1. It’s loaded with features

Most VoIP providers include features with their VoIP service for which traditional ISP’s would usually charge an additional fee. So, where you might have been paying your old provider monthly for Caller ID, Call Forward, Call Waiting, and Call Transfer, these features will usually be included in your VoIP service at no extra cost. The range of features are quite extensive, and it pays to shop around with different providers. Some charge more than other for extra features, while some have a whole host of them for free.

2. VoIP will be best friends with your phone system

VoIP is ideal for business phone systems for a number of reasons, and it will work with a traditional, hybrid, IP or Hosted system. In some cases, new licenses and ATA’s will be required, so look around for an honest provider that will help you switch your phone system to VoIP with the minimum expense.

3. VoIP will save you a lot of money

Because VoIP uses the internet as a pathway for your communication, rather than the cables previously used on the PSTN network, line rental is the first place you are going to see savings. Some providers offer VoIP lines for as little as $5. The same goes for your phone calls. Even international phone calls are up o a third less expensive than with PSTN lines and, with some providers, local and national calls will be free. Mobile rates are lower, and we’ve personally seen some of our client’s make a 70% saving in their monthly phone bill after switching to VoIP.

4. VoIP is a lot more flexible

One of the drawbacks of traditional PSTN communication was that, if you wanted to add another user in your office, you’d have to pay for another line, and have someone come to your office to install an outlet. VoIP is a lot easier to scale up or down, and most of the changes you’d be likely to make can be made remotely by your provider. The same goes for managing your features and, in a lot of cases, you can actually make the changes you want yourself using a web interface (if you’re using a softphone).

5. VoIP is the best NBN friendly option you have

Pretty soon, all PSTN lines will be either removed or made redundant, so whether you like it or not, VoIP will be the only answer.

Plus there are also many more reason for small & medium size businesses to switch to using VoIP that you can learn more about here.

Disadvantages of VoIP

While VoIP has a lot of benefits it does, like everything, have a few drawbacks, and they all relate to it being reliable under certain circumstances.

1. VoIP is dependent on a quality internet connection

As a result, QoS issues can affect the quality of your VoIP phone calls. It’s also important to make sure your bandwidth is capable of carrying your VoIP service, in addition to your general office internet use, otherwise a heavy download could cause a dropout in your phone calls. This is why our carrier partner SpringCom recommends having a dedicated internet connection just for your voice data.

2. VoIP runs the risk of viruses and hackers

It’s rare, but VoIP hacking is definitely a thing. Good news is that there are some easy steps your business can take to protect yourself.

3. VoIP will make emergency calls a bit of a challenge

Because VoIP uses an IP address as a phone number, and a geographic location can’t be drawn from an IP address. With PSTN lines, if you couldn’t tell the emergency operator your address, they could still trace your location. With VoIP, there’s no way to find the precise location of the caller if they can’t tell the operator their address. View the information about VoIP and emergency calling from ACMA.

VoIP, the NBN, and your Phone System

The NBN means that every home and business will have to find a new way to make phone calls – and that means VoIP. Residential customers, for the most part, will be able to simply connect their existing phone into an NBN outlet and start making VoIP calls. There are a lot of VoIP myths out there but this option is not viable for businesses, because it is limited to two phones.

The solution for you will be to start using VoIP – and it’s not as scary as it sounds…

Instead of plugging your phone into an outlet in your wall, you will now plug them into your modem to connect them to the NBN.

As we mentioned earlier, an ATA may be required for older phones and phone systems and, in some cases, you’ll be required to buy a license. The ATA will simply connect between your phone and your modem. It’s also likely that your business will benefit from SIP (Session Initiation Protocol), which is business grade, superior VoIP. Find out more about How SIP Works with a Phone System.

The key to being ready for VoIP – and the NBN in general – is to look for a provider who you can trust. Many businesses are getting sketchy information about VoIP, SIP, and Phone Systems, and end up spending a fortune on new phone systems, handsets, and hardware that they don’t actually need.


This article has addressed the question, ‘How does VoIP work’, and looked at how it will work for your business, including some of its advantages and disadvantages.

As mentioned, switching your business service to VoIP won’t be a choice once the NBN has been rolled out in your area. The good news is that – if you prepare properly and get the right advice before you make the switch – your new VoIP service will improve the way your business communicates.

Unfortunately, if you don’t prepare, things can get tricky. Assuming that the switch is as simple as NBN. Co. advertises it will be (“As easy as 1…2…3…”) can be a big mistake. There are a lot of factors to take into consideration, including your phone system, internet, EFTPOS terminals, and security systems. If you forget to plan ahead for these and many businesses have done – you could be stuck without them for days, weeks, and even months.

The advice we give to our phone system clients, and anyone else who asks us about the NBN, is to get an NBN-ready audit for your business. Have an Infiniti technician visit your office and assess everything from your handsets to your phone and internet outlets. They’ll give you the advice you need to make the switch to the NBN efficiently, saving to time and money in the long run. Get in touch with our team today on 1300 889 792 to arrange an NBN audit for your business today.